Bad News for Clean Line Hustlers – PJM Limiting Capacity Imports

RTO Insider reports that PJM Interconnection is placing a limit on the amount of capacity from generators outside the PJM region that can clear PJM’s RPM auction next May. This is bad news for Midwest transmission hustlers like Clean Line with all their talk of exporting wind power to the East Coast.

According to RTO Insider, the new limits will reduce the amount of imported capacity that clears next year’s RPM by 17% compared with the May 2013 auction.

The change will put upward pressure on capacity prices. How much it will help generators inside PJM, who have been hurt by the fall in capacity prices resulting from competition from both imports and demand response, is unclear.

In response to a question from Susan Bruce, representing the PJM Industrial Customer Coalition, PJM Executive Vice President for Markets Andy Ott said he believed the import limit will be “smaller magnitude in dollars” than a demand response proposal that members rejected yesterday. The DR proposal would add about $1 billion a year in capacity costs according to PJM’s simulations. (See related story PJM Wins One, Loses One on Capacity Market Changes)

In response to a later question from the Maryland Public Service Commission’s Walter Hall, Ott gave a response that seemed to undercut that certitude, saying “We do not have an estimate, nor could we get an estimate, as to the import limit” impact.

There are a number of variables that could affect future clearing prices, including the strength of the economy and the volume of demand response. DR offers dropped 27% in May from the 2012 auction. A rebound in DR offers next year could at least partially offset the import restriction.

It is good to see PJM taking steps that will help encourage new generation and demand resources in PJM instead of building new transmission capacity to handle more imported power.

Yes, electricity could flow through Clean Line into PJM, if PJM had a need for it, but that is different from capacity. Only generators can bid power into the RPM auction. PJM is only limiting the amount of power that can be bid into the RPM from generating capacity outside PJM, not energy.

But we’re talking about merchant projects, where a negotiated rate contract will exist between the seller in Iowa or Kansas or Oklahoma and the load serving entity on the east coast. Why would that be bid into the RPM? But my understanding is that when PJM studies merchant lines that want to connect they are treated as generators, because they effectively inject power into PJM’s grid like a generator. See my post about the quarterly state of the market report — the IMM wants to clear out the generation and merchant transmission queues to make way for projects that are viable. This is how Clean Line would get shoved to the head of the class. Also, these guys sell their unneeded spots to others — Clean Line obtained several spots near the top of the queue instead of getting in the back of the line. If IMM is going to clear out the queue, they are taking something of value from the generators who own those spots — how does that square with the ones that were already sold, and why wouldn’t generators that paid to line jump get shoved to the end of the line? It’s complicated and we’ll never understand it fully.